China is the global leader in methanol use and has recently expanded its methanol production capacity. Now, a study commissioned by the US Energy Information Administration (EIA) from Argus Media (a global provider of analysis on energy and commodities), finds that since the early 2000s, China’s consumption of methanol in fuel products has risen sharply. The report estimates consumption to have been more than 500,000 barrels per day (b/d) in 2016.
EIA commissioned the study to better understand China’s consumption of methanol and its derivatives. The estimates developed in the study have now been incorporated into EIA’s historical data and forecasts of petroleum and other liquids consumption in China.
|Annual methanol consumption in China, 2000-16. Source: EIA and Argus Media group, China Methanol to Energy Study, January 2017. Click to enlarge.|
Background. Beginning with its February Short-Term Energy Outlook (STEO), EIA incorporated revisions to historical international liquids consumption data into the STEO’s international liquid fuels market balances. After completing a re-assessment of energy use for a broad range of countries for the period 2013-14, EIA updated its historical data, with the largest changes occurring in China and other non-OECD countries. These changes were driven by an analysis of methanol use in China and the incorporation of more detailed information on the refined product markets in China and other non-OECD countries.
The main effect of this change on the forecasted STEO liquid fuels market balances is that the higher consumption in 2014 raises the baseline to which the STEO forecast benchmarks. As the assumed annual growth rates for forecast liquid fuels consumption have remained unchanged for 2015-18, the higher baseline 2014 data raises overall consumption through the forecast period.
EIA recently completed a re-assessment of energy use in China. This review consisted of a closer look at the refined products markets in China, and also a sectoral analysis of energy use. The sectoral analysis of energy use suggested that previous data for liquid fuel use in China’s transportation sector were underestimated. EIA research indicated that part of the reason for the underestimation of transportation sector consumption of liquid fuels stemmed from the use of methanol and its derivatives that were increasingly added into China’s gasoline and liquefied petroleum gas (LPG) streams. As a result, EIA commissioned Argus Media group to complete a study to evaluate the energy use of methanol and its derivatives in China.
Methanol in China. Methanol, like ethanol, is an alcohol with inherent issues such as its solubility in water and corrosiveness. Methanol or its derivative products can be added to fuels such as gasoline and liquefied petroleum gases (LPG). Similar to how ethanol is currently blended into motor gasoline in the United States, methanol is blended into gasoline in China.
Most of China’s methanol supply is from domestic production. About two-thirds of China’s methanol feedstock is produced from coal and the remainder from coking gas (a by-product of steel production) and natural gas. China has abundant coal resources, and for more than a decade the country has increased its capacity to manufacture methanol using coal as a feedstock. Smaller amounts of China’s methanol supply are imported from the Middle East, Southeast Asia, South America, and the United States.
Methanol is a clean-burning, high-octane fuel component, as the oxygen present in methanol aids in more complete fuel combustion. Blending methanol with gasoline allows refiners to extend China’s gasoline supply and increase the octane level of its gasoline. However, methanol has only one-half the energy per unit of volume as gasoline and requires more fuel consumption on a volumetric basis to provide the same amount of energy.
China’s largest city, Shanghai, and 13 of China’s 23 provinces have approved local standards for methanol blends ranging from 5% to 100% methanol. China has a national quality standard for methanol blends of 85%, and a national standard for a 15% blend of methanol in gasoline is pending approval by the government.
The methanol derivative methyl tertiary butyl ether (MTBE) is also blended into gasoline in China to increase octane levels. Consumption of MTBE and other derivatives in China was estimated at 230,000 b/d in 2016.
Starting in the 1990s, MTBE was used as an oxygenate and octane enhancer in reformulated gasoline sold in the United States, with domestic production exceeding 200,000 b/d from 1998 to 2002. However, concerns over groundwater contamination led an increasing number of states to ban it. Following enactment of provisions of the Energy Policy Act of 2005 that were interpreted as reducing or eliminating legal defenses available to MTBE blenders, its use was soon phased out in the United States.
Methanol can also be converted directly to gasoline, and in China this conversion occurs much less often than the blending of methanol or its derivatives into gasoline.
China built its first methanol-to-gasoline (MTG) plant in 2010, and since then, another 10 MTG plants have come online. MTG units involve high capital costs and are only cost-competitive when oil prices are high. Lower oil prices since late 2014 have reduced China’s MTG plant operating rates and have created uncertainty for investment in new MTG plants.
For blending into liquefied petroleum gases such as propane, China uses methanol to create a derivative known as dimethyl ether (DME), a compound that has the same molecular formula as ethanol but a different chemical structure. Despite an official ban on the use of DME in LPG cylinders, some DME has been blended into LPG delivered to China’s residential sector. Over the past two years, two factors—stronger enforcement of the DME ban and lower price competitiveness of DME relative to LPG—have reduced the level of DME blending.